Replacement Property identification is important in 1031 Tax Deferred exchanges. If an exchange fails, it’s often because of deficiencies or discrepancies in the identification of Replacement Properties. Take a few minutes to make sure you and your client understand how to properly ID your Real Estate Exchange Properties.
Identification rules for a 1031 Exchange
You have 45 days from the transfer of your first Relinquished Property to identify potential Replacement Property.
Identifications must be specific and unambiguous, in writing, signed by the exchanger and delivered to IPX 1031 prior to the end of the 45-day identification period.
The list of identified potential replacement properties cannot be changed after the
45th day.
You may only acquire Replacement Property from the list of identified properties.
And if no property is identified the exchange will fail and the exchange funds will be returned to the exchanger after the 45th day
Exchangers have flexibility to identify multiple and alternate Replacement Properties.
The identification needs to be made pursuant to one of the following:
• 1) the Three-Property Rule allows the exchanger to identify one, two, or three properties without regard to their value. They can acquire one or all of the identified properties. If they want to identify more than three, they must utilize one of the following.
• The 200 rule permits the identification of more than three properties, however, the aggregate value of all properties identified cannot exceed 200 percent of the value of the property being relinquished. As with the Three-Property Rule they can acquire one or all of the identified properties.
• Or lastly the 95 exception provides if they exceed both of the above rules. They can still have a valid 1031 Exchange if they acquire 95 of the total value of the properties identified.
If you have any further questions, please reach out to us or access our knowledge center on our website for more information.
